Urban reforms can no longer be ignored

Kala S Sridhar/Vishal R | Updated on June 09, 2020

India’s densely populated cities, the engines of economic growth, have been the worst affected by the pandemic. Social infrastructure, especially housing for the urban poor, needs to be scaled up

Much as it was criticised for imposing one of the world’s most stringent lockdowns, the government has focussed on an economic package for the economy battered by a recession, and aggravated by the lockdowns necessitated by the pandemic. The ₹20 trillion package, targeted at farmers, consumers, the urban poor and small industry, is quite relevant to nurse the economy back slowly to recovery. What is also observed as part of the policy response to the crisis is the set of non-monetary reforms, pertaining to land and labour that have accompanied the economic package.

Urban land is quite scarce and expensive due to a variety of reasons in India; in addition, in most States, it is quite difficult to convert land from agricultural to non-agricultural uses without a lengthy list of procedures and processes. Repeatedly, the Centre has emphasised reforms in land and labour as a necessity for ease of doing business.

Land, labour reforms

The Karnataka government has relaxed the Land Reforms Act 1961, whereby industries can buy land directly from farmers and land owners, after initial review by the revenue department, such that the State does not get in the way as an obstructionary intermediary. This is likely to cut transaction costs, reduce litigation, and improve land management. Given the far-reaching ramifications of land use, this is expected to expedite firm location decisions, investment and job creation. We should thus utilise a crisis to make urban land more productive.

Some States have started labour reforms to facilitate industry. Madhya Pradesh has eased the Factories Act and the Industrial Disputes Act to reduce paper work for industry in the aftermath of the lockdown, while Uttar Pradesh has exempted industry from following key labour laws (presumably pertaining to social security, hiring and firing) for three years, in order to enable them to start their operations.

Even though this can be arguably perceived as anti-labour by some, such laws will enable industry to create jobs more quickly, and may actually help those in the labour force looking for jobs, while maintaining the going concern nature of the industry which are also buffeted seriously by the pandemic, leading in many instances to existential crisis.

The lockdown has highlighted the important role maids, drivers, nannies and cooks play in our lives. It is criticised that the government ignored the urban poor; in two studies — one funded by the then Ministry of Housing and Urban Poverty Alleviation as part of its Support to National Policies for Urban Poverty Reduction (SNPUPR) and another by the South Asia Network of Economic Research Institutes (SANEI), both as early as 2012, we found that the urban poor in Bengaluru contributed about 1.5-2 per cent of the city’s economy, and the urban poor in Chennai contributed about 14 per cent to the economy of that city, using standard national income accounting methods.

So, it is welcome that given the imperfections in land markets, the government has started initiatives for affordable housing for the urban poor who contribute so much to the city economies. The suggestion to private industry and institutions to develop affordable housing in their own premises is more tenable, given what we found in a different study, since residential premises cut down commute time to work.

Further, the initiative to offer free food grains to the poor, among other measures, are welcome, given the significant amount of grains stored in the FCI granaries, which eventually make their way to the public distribution systems (PDS).

As the Prime Minister said, we should avoid the spread of the pandemic to rural areas which shows that cities, characterised by their density, are badly hit by the pandemic and economic growth has suffered immensely due to locking our cities down. Cities which are our engines of economic growth, where the maximum productivity takes place in its jobs, cannot continue to be ignored.

No doubt the decentralisation of policy-making to cities is being recognised now, as they are completely empowered to make decisions regarding testing, quarantine and monitoring. Even while the 15th Finance Commission has promised to include health in its devolution of funds to States and finalise its report, there are no funds set aside for urban local bodies, based on the various stimulus packages, even though relaxation of fiscal deficit norms is accompanied by certain urban reforms which, if sustained, will help the cities to manage themselves better.

We should respect cities as units and levels at which data on healthcare, both public and private, have to be reported. Data on tourist arrivals, hotels/restaurants, cinema and malls, among many things, which are characteristic of cities, should be routinely gathered. Then it is possible to keep track of the extent of loss in the event of a pandemic or crisis and make policy based on this information. It should be the case then that crises lead to bold reforms, as our own 1991 BoP crisis demonstrated, which started to unleash an era of reforms in our country.

Rent control

In its enthusiasm to provide affordable housing for the urban poor, the government should not bring back rent control. Rent control has the artificial effect of dampening rents for tenants during the crisis, but will hurt them in the long run, since it diminishes the incentives of landowners in making improvements to their property.

There has been much more public support to overcome the crisis in India rather than in other countries (the US, that is) where there are many protests to end the lockdown. Other countries also are beginning to unleash economic packages to boost their economy, where there is no need for non-monetary reforms, given their economies are highly urbanised and the importance of cities and data at that level are recognised; India still has a long way to go on that, and the sooner we ramp up, the better we are placed for various emerging challenges in this VUCA (Volatile, Uncertain, Complex and Ambiguous) world.

The authors are respectively Professor, Institute for Social and Economic Change, and an IAS Officer, Government of Karnataka. Views are personal.

Published on June 09, 2020

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